Cultural-Institutional Persistence under International Trade and Factor Mobility

48 Pages Posted: 26 Mar 2009 Last revised: 30 Jul 2012

See all articles by Marianna Belloc

Marianna Belloc

Sapienza University of Rome - Department of Economics

Samuel Bowles

Santa Fe Institute; University of Massachusetts

Multiple version iconThere are 2 versions of this paper

Date Written: July 13, 2012

Abstract

We address two seemingly unrelated empirical anomalies: the remarkable historical persistence of cultural and institutional differences affecting production and distribution even among nations and regions engaged in extensive trading, and the shortcomings of the standard model that predicts inter- national specialization and trade on the basis of differences in factor endowments or technologies. We model the endogenous evolution of both culture (the distribution of preferences affecting individual behavior) and institutions (the distribution of contracts among employers and employees), show- ing that in otherwise identical economies, different cultural-institutional conventions can persist over long periods. Transitions between cultural-institutional conventions occur as a result of decentralized and un-coordinated contractual or behavioral innovations by firms or workers. In a two-good/two- factor/two-country trade model, we then show that: (i) because goods differ in the kinds of contracts and preferences that are appropriate for their production, cultural-institutional differences support differing competitive prices in autarchy, and so provide the basis for specialization and comparative advantage; (ii) the resulting gains from trade raise the cost of deviations from the prevailing culture and institutions and, as a result, trade will impede transitions to the superior convention; and (iii) by contrast, by reducing the cost of innovating, international mobility of factors of production facilitates convergence to superior cultural-institutional conventions. Our model thus provides a possible unified resolution of the anomalies concerning patterns of specialization and trade, and cultural-institutional persistence.

Keywords: endogenous institutions, endogenous social preferences, evolutionary game theory, culture, trade integration, factor mobility, globalization

JEL Classification: D02, F15, F16

Suggested Citation

Belloc, Marianna and Bowles, Samuel, Cultural-Institutional Persistence under International Trade and Factor Mobility (July 13, 2012). CESifo Working Paper Series No. 2762. Available at SSRN: https://ssrn.com/abstract=1368300 or http://dx.doi.org/10.2139/ssrn.1368300

Marianna Belloc (Contact Author)

Sapienza University of Rome - Department of Economics ( email )

Via del Castro Laurenziano 9
Rome, 00161
Italy

Samuel Bowles

Santa Fe Institute ( email )

1399 Hyde Park Rd
Santa Fe, NM 87501
United States
505-984-8800 (Phone)
505-982-0565 (Fax)

HOME PAGE: http://www.santafe.edu

University of Massachusetts ( email )

Amherst, MA 01002
United States
413-545-2590 (Phone)

HOME PAGE: http://www-unix.oit.umass.edu/~bowles/

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